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UBS suffers US sub-prime loan hit Banks admit US mortgage loan hit
(29 minutes later)
UBS has said it will have to write down losses totalling 4bn Swiss francs ($3.4bn; £1.67bn) in relation to bad investments in risky US home loans. A number of big investment banks have admitted big losses as a result of bad investments centred on the crisis hit US sub-prime mortgage market.
The Swiss wealth manager admitted the hefty losses will lead to a slump of between 600m and 800m Swiss francs in its third-quarter earnings. Swiss bank UBS was worst hit, forced to write down 4bn Swiss francs ($3.4bn; £1.67bn) of losses due to its exposure to US sub-prime bad debt.
UBS called the results, which mark the first loss for the bank in nine quarters, "unsatisfactory". UBS said it would now cut 1,500 jobs and make extensive management changes.
It said it will now cut 1,500 jobs and carry out extensive management changes. US giant Citigroup said its sub-prime losses would total $1.3bn, in addition to $2.6bn of extra credit costs.
UBS also suspended its share buyback programme in the wake of the extensive write downs. UBS called its results, which mark the first loss for the bank in nine quarters, "unsatisfactory".
"The share buybacks are driven by profitability," said UBS chief executive Marcel Rohner. Widespread damage
UBS is big enough to more than weather this storm BBC business editor
"When the profitability returns, we'll also see buybacks, " he added.
BBC business editor Robert Peston said: "The mess is doubly embarrassing for UBS since it took a substantial hit in the dry-run for this summer's market mayhem, the crisis afflicting the giant hedge fund, Long Term Capital Management, in 1998.BBC business editor Robert Peston said: "The mess is doubly embarrassing for UBS since it took a substantial hit in the dry-run for this summer's market mayhem, the crisis afflicting the giant hedge fund, Long Term Capital Management, in 1998.
But he added: "UBS is big enough to more than weather this storm."But he added: "UBS is big enough to more than weather this storm."
Witch hunt UBS has also suspended its share buyback programme in the wake of the extensive write downs.
Many analysts had predicted some losses at the Swiss bank after it warned recently that weak trading would result should "turbulent conditions prevail". "The share buybacks are driven by profitability," said UBS chief executive Marcel Rohner.
But few had forecast the magnitude of the write downs relating to securities backed by risky sub-prime mortgages which have seen record defaults in the face of higher US mortgage rates. "When the profitability returns, we'll also see buybacks, " he added.
They are likely to send shivers down the spines of investors, who have harboured fears over how far the downturn in the US housing market has spread to the global economy. Meanwhile, Credit Suisse flagged up that it too will report lower third quarter results because of the damage caused by the sharp deterioration in the sub prime residential mortgage backed securities market.
The concern is that UBS is not the only major financial organisation with skeletons in its cupboards. But it it will still make a profit, unlike UBS.
Rival Credit Suisse has already flagged up that it too will report lower third quarter results because of the damage caused by the sharp deterioration in the sub prime residential mortgage backed securities market. Bubble pricked
But, unlike UBS, it said quarterly earnings would still be profitable. US bank Citigroup will also make a profit in its third quarter, but this will be a third of what it was last year.
Citigroup chief executive Charles Prince said in a statement the decline had been driven "by weak performance in fixed-income credit market activities, write-downs in leveraged loan commitments, and increases in consumer credit costs".
The profit warning was triggered largely by $1.3bn write down on the value of securities backed by risky sub-prime mortgages which have seen record defaults in the face of higher US mortgage rates.
But the bank also confirmed a pre-tax loss of $1.4bn pre-tax loss on loans to private equity firms, which have until now been snapping up businesses with ever more expensive price tags at a phenomenal rate.
"This is cringe-making for Citi's chief executive, Chuck Prince," said Mr Peston.
"In July, he told the FT that his bank was 'still dancing' in the private equity market, long after it was obvious that the private-equity bubble had been pricked and was deflating at an alarming rate."
Some visibility?Some visibility?
As concerns about the global market continue, banks have refused to lend money to other banks. As for the damage to UBS, many analysts had predicted some losses to earnings after it warned recently that weak trading would result should "turbulent conditions prevail".
This has caused further problems in the money markets and forced central banks in Europe, the US, Japan and most recently the UK to make available billions of pounds at a more affordable lending rate than those on offer from their commercial counterparts. But few had forecast the magnitude of the write downs.
"Today's UBS news is certainly bad news," said Claudia Meier, an analyst at Vontobel."Today's UBS news is certainly bad news," said Claudia Meier, an analyst at Vontobel.
But she added: "On the other side, it finally gives some more visibility to the sub-prime fears and we expect the market to like this." But she argued: "On the other side, it finally gives some more visibility to the sub-prime fears and we expect the market to like this."